[SME Regulation Site②] "Severity Misjudged, All Labeled as Disqualified Operators"

[Planning] Visiting the Site of SME Regulations
All Items from Disqualified Vendors and Companies Restricted from Bidding at All Demand Agencies
Criticism of 'Excessive Sanctions Contrary to the Principle of Proportionality'

Bid (Image=Getty Images Bank)

The term ‘Bujeongdang Eopja’ (disqualified contractor) is like a stigma for small and medium-sized enterprises (SMEs). Once labeled as a Bujeongdang Eopja, all items from that company are barred from bidding at all demand institutions. This means that all public sales channels are blocked. The plea that "if you become a Bujeongdang Eopja, you have to close your doors" is not an exaggeration. The problem lies in the fact that uniform sanctions are imposed regardless of the severity of the reasons for being penalized as a Bujeongdang Eopja. In the field, it is pointed out that "there is a difference in the gravity of offenses such as collusion and minor defects in some products during contract execution, but concluding both as Bujeongdang Eopja is problematic."

According to the related industry on the 8th, the National Contract Act stipulates 11 reasons for restricting the bidding participation qualifications of Bujeongdang Eopja. When adding the 11 reasons delegated to the enforcement decree, a total of 22 reasons can restrict bidding participation qualifications. The restriction on bidding participation qualifications is notified to all institutions through registration on ‘Nara Marketplace’ (Nara Jangteo). Institutions are required to restrict the bidding participation qualifications of the relevant company. Restricting bidding participation qualifications is a strong measure that effectively prohibits business activities, which are fundamental to corporate operations. This sanction makes all public sector bids and private contracts impossible.

However, sanctions are currently imposed without differentiation according to the nature or effect of the reasons, blocking corporate activities. For example, in the case of a single contract non-fulfillment, although damages can be compensated through compensation or forfeiture of contract deposits, the industry believes that imposing administrative sanctions restricting bidding is excessive. This is why criticism arises that it is an ‘excessive sanction violating the principle of proportionality.’

Chairman Gu Ja-ok

Gu Ja-ok, Chairman of the Korea Machinery Industry Cooperative Federation, explained, "Even in cases of minor violations, there are insufficient separate exceptions," adding, "Especially when this sanction is imposed, all production items of the company are effectively killed, making it impossible to conduct business activities." In particular, even for excellent procurement products, if there is a deviation from the specified standards during evaluation and it is detected, the excellent procurement qualification is lost and bidding restrictions are imposed. Chairman Gu said, "Even if the demand institution requests production that deviates from the standards, the excellent procurement status is canceled," and "To be re-designated as an excellent procurement product, it must be a different item, which takes about a year." This means that even minor issues where the demand institution requests partial changes to specifications can result in sanctions equivalent to 1 to 2 years of business activity restrictions.

The industry argues that the reasons for restrictions should be classified according to the severity of the violation. Strong sanctions should be imposed for reasons such as bribery or leading collusion, but the level of sanctions should be lowered for minor discretionary reasons. An industry official said, "Various measures such as warnings, voluntary corrections, exemptions, and conditional sanctions should be operated depending on the content or degree of the violation." The industry also stated that simple contract non-fulfillment should be removed from the list of sanction reasons.

In fact, a ruling by the Seoul High Court stated that unconditionally restricting bidding participation qualifications for all violations violates the principle of proportionality and that bidding qualifications should only be restricted when there is a risk of impairing fair competition or proper contract execution. The Public Procurement Service has also expressed a position to consider exceptions for minor violations. However, changing the system is not easy, and the management difficulties of SMEs continue. Chairman Gu said, "Because there are no exceptions based on severity, voices from the field calling for improvement are growing louder."